Warren Buffett has been summoned because Berkshire Hathaway is a major investor in the ratings agency Moody's. Photograph: Saul Loeb/AFP/Getty Images

3.21pm: As my colleague Graeme Wearden points out in this preview piece, Buffett was less than keen to appear before the Financial Crisis Inquiry Commission - the billionaire only made the trip to New York from his home in Omaha after receiving a subpoena.

Buffett has been called because he has a 13% stake in one of the big three ratings agencies, Moody's. But more broadly, the panel wants to hear from him because the so-called Sage of Omaha's views on finance are closely followed and scrutinised by small investors across the US.

The 79-year-old has offered a measured defence in the past of Moody's and its rivals, Standard & Poor's and Fitch. He waxed lyrical on the business model of the agencies at the annual meeting of his Berkshire Hathaway empire last month, pointing out that they have limited competition, little need for capital but an almost unstoppable flow of revenue from Wall Street.

But he admits he doesn't take too much notice of their ratings himself - he told his own shareholders: "We have never paid any attention to ratings for bonds at Berkshire. We don't think we should farm out, outsource investment judgement."

3.30pm: It's standing room only at the New School, a university in downtown Manhattan where Warren Buffett will be quizzed today about his views on the future of credit rating agencies - the supposedly objective arbiters of investment products which proved fatally flawed in the run-up to the global financial crisis. The hearing is set to kick off at about 11.30am eastern time (4.30pm BST).

3.43pm: Ray McDaniel, the chief executive of Moody's who will be appearing alongside Buffett, is preparing to eat a large slice of humble pie.

In written evidence just released, McDaniel is highly apologetic over his firm's role in the credit crunch, admitting that Moody's performance in giving top-grade ratings to subprime mortgage-backed securities was "deeply disappointing".

"Moody's is certainly not satisfied with the performance of those ratings. Indeed, over the past few years, there has been an intense level of self-evaluation within our organisation," says McDaniel, whose written testimony in full is here.

He adds: "Neither we - nor most other market participants, observers or regulators - fully anticipated the severity or speed of deterioration that occurred in the US housing market or the rapidity of credit tightening that followed and exacerbated the situation."

3.48pm: Buffett is giving an interview on CNBC. He admits he's not thrilled to be subpoenaed, saying in the last 12 to 15 months he's had 8 different committees asking him to give evidence.

"I've got a job running Berkshire. If I go to one voluntarily, I'm going to have ten others asking me to go to theirs."

3.51pm: The billionaire admits rating agencies got caught up in a bubble: "It was part of a bubble mentality and that bubble mentality got incorporated into models used not just by rating agencies but by others."

He says ratings got out of control: "It was a very, very big bubble, probably the biggest bubble I've ever seen, popped. When it popped, A's became D's and so on."

And Buffett admits the agencies failed in their supposed objective wisdom: "They were incapable of thinking at great variance from what everybody else thought."

3.55pm: He says the agencies have "one of the world's great business models" - "if you look at rate of return of capital for S&P or Moody's, it's practically infinite".

4.00pm: America's second richest man is vague but pessimistic on Europe's economic difficulties, describing credit contagion as a "dangerous situation", although he doesn't think it's had much impact on the US yet.

"I feel optimistic about the US economy."

CNBC's Becky Quick asks: "What about the global economy?"

Buffett laughs and says: "I feel optimistic about Asia."

4.09pm: The real thing will start in about 30 minutes. Buffett told CNBC that in various interviews held in private with the Financial Crisis Inquiry Commission, he was only asked a few bits and pieces about ratings agencies. Really, they just want his pearls of wisdom on everything connected to the credit crunch and his stake in Moody's is a handy excuse to drag him in front of the panel.

4.27pm: The New York Times' Andrew Ross Sorkin offers a nice selection of tricky questions for the panel to ask Buffett in his column this morning. How did Moody's fail to notice an "epidemic of mortgage fraud" across the US, given that the FBI started warning about irregularities as early as 2004?

4.40pm: Unusually for a witness at these events, Buffett hasn't bothered submitting any written testimony. He's the only one who isn't offering any opening remarks out today's eight witnesses connected to Moody's. It's perhaps a sign of his clear irritation at being dragged to New York to answer questions.

"two shots for any references to 'rating cows'; one shot for each reference to Wells notices; one shot for each invocation of First Amendment rights; two shots for any fist-pumping references to judge Jed Rakoff's 'look ma, no underwriters!' ruling."

4.54pm: The Moody's CEO, a bald, bespectacled man with a severe tone, has begun reading his opening statement, which admits his company's analysis of dodgy mortgages was "deeply disappointing".

He has a long, slightly existential defence, though, of the uncertainty of life: "If the future could be known with any certainty, we would need only two ratings for bonds: 'default' or 'won't default'. However, because the future cannot be known, credit analysis necessarily resides in the realm of opinion."

4.57pm: The panel's Democratic chairman, Phil Angelides, is kicking off questioning with an attack on Moody's CEO. He says that statistically, flipping a coin would have been five times more accurate than Moody's ratings of mortgage-backed securities in the run-up to the financial crisis.Of the triple-A rated mortgage-related securities rated "AAA" by Moody's in 2006, some 83% ended up being downgraded. The following year, 89% of investment graded mortgage bonds by Moody's were downgraded to junk.In reply, McDaniel repeats that he is "deeply disappointed" with Moody's performance on this, which is "injurious" to Moody's reputation: "The regret is genuine and deep with respect to ratings in the housing sector."

5.03pm: Angelides points out that the Moody's boss was paid $39m over the period running up to the credit crunch. If American capitalism is about "risk and reward", why hasn't he lost his job?

At this point, Buffett weighs in to defend Moody's, saying that when society has to step in to rescue institutions, "the CEO should go away broke and his wife should go away broke". But Moody's wasn't bailed out. He says Moody's made "a mistake that three hundred million other Americans made" in failing to predict the housing collapse.

"The whole American public was caught up in a belief that American housing couldn't fall dramatically," says Buffett. "Very, very few people could appreciate the bubble. That's the nature of bubbles - they're mass delusions."

5.06pm: Now Buffett's under the microscope. Phil Angelides points out that the billionaire was Moody's largest shareholder. Was he concerned about the changing culture at Moody's, people sacrificing quality for profit? What responsibilities do shareholders have?

"In 2006, I was not sitting there thinking the housing bubble would get as large as it did and that it would burst," says Buffett. "If I did, I would have sold my stock."

5.10pm: Buffett says there was no need for a change of management at Moody's - they simply made a mistake that many, many others did. He denies allegations from an earlier witness that two senior executives approached him before the crisis about problems at Moody's.

The panel's chairman isn't impressed. Angelides waves a copy of the Economist from as early as June 2005 with a warning of a housing collapse on its cover - it shows a brick falling, with the headline "After the Fall". He emphasises that there were people who foresaw the trouble ahead, which began in earnest in 2006 and 2007.

5.13pm: How about a change of business model so that investors, rather than issuers of securities, pay for credit ratings? Then the rating agencies wouldn't have an apparent conflict of interests in earning their revenue from banks - the very institutions whose worthiness they are impartially judging.

5.17pm: There's no sympathy from Angelides, who is hammering Moody's CEO again: "The miss was huge...90% downgrades. Even the dumbest kid in the class gets 10% in an exam."

McDaniel insists Moody's service is just "analysis" of data. It wasn't responsible for going out looking at peoples homes and examining their mortgages. He suggests this was up to appraisers, mortgage lenders and surveyors: "Our job is not to replicate, duplicate the roles of others in the market."

5.27pm: The panel's vice-chairman, former Republican congressman Bill Thomas, is up next. He wants to know what Buffett thinks Congress has got right and wrong in financial regulatory reform.

Buffett identifies two issues - compensation and leverage. On pay, he says there have to be major disincentives in getting government bail-outs: "No one has any business running any large financial institution unless they regard themselves as the chief risk officer. There has to be a large downside for the CEO, and significant for the board, if government help is required."

He adds that leverage, although difficult to define, must be constrained - excessive debt accentuated the "pop" when the bubble burst.

5.43pm: Bob Graham, former Democratic governor of Florida, is asking Buffett why he thinks, as a society, the US missed so many signals across a range of areas about risk.

"Rising prices and discredited cassandras from the past blunt sensitivities and judgement even of people who are very smart," says Buffett.

He says houses always seemed a sound investment, and people simply got too used to rising values.

"Rising prices are a narcotic that affect reasoning power up and down the line," Buffett says, adding that Isaac Newton took part in the South Sea bubble.

5.50pm: A Republican on the panel, Peter Wallison, wants to know if Moody's analysts are allowed to speak to the "issuers" whose securities they are rating.

McDaniel says they do - they may have questions about management strategy, future plans with respect to capital structure, and that communication is useful. He doesn't think it leads to untoward pressure being put on ratings analysts.

5.51pm: The Moody's boss is asked what he thinks caused the financial crisis.

"The weakening of the housing market, the softening of that market, and then importantly, the very rapid tightening of credit for mortgage borrowers who needed to re-finance greatly exacerbated that issue," says McDaniel, who says nothing about the role played by credit rating agencies.

5.55pm: Wallison asks Warren Buffett why he, with all his expertise, didn't see the bubble coming.

"It really was the granddaddy of all bubbles, it affected an asset class of $22 trillion," says Buffett.

The billionaire says he had previously surprised, too, about the extent of the internet bubble a decade ago and adds, with a smile: "I never understood why tulips were worth what they were in the Netherlands."

As Wallison presses him on his apparent lack of foresight, Buffett admits: "Yeah, I know, I blew it."

"I didn't think it would pop like it did."

5.58pm: Buffett is asked why he sold his stock in the mortgage aggregator Freddie Mac before the financial crisis began. He says he was concerned about Freddie Mac buying securities that had nothing to do with housing, and was suspicious about the activities the company was getting involved in: "I figured if you see one cockroach, there's probably a lot more in the kitchen."

6.00pm: The panel quizzes Buffett about his often quoted statement that derivatives are "financial weapons of mass destruction". Why, then, has he been investing in them?

Buffett bluntly says that if they're used improperly, derivatives pose system-wide problems. But he sees no reason why he shouldn't be opportunistic: "I use them to make money - if I think they're mispriced, I buy them."

6.13pm: Employing another colourful metaphor, Buffett admits the rating agencies should have changed the way they were operating sooner, as evidence grew of a housing bubble.

"It looks like they tweaked their model when they should have gone at it with a meat-axe."

In Sept 2008, our financial system basically came to a halt.

30m people in money market funds $3.5 trillion in money market funds

commercial paper stopped in terms of issuance

Buffett and McDaniel continue to answer questions but I need to sign off now to write some news...you can watch live coverage of the hearing on CSpan's website here.

The general message from the Sage of Omaha is that his beloved Moody's got it wrong in failing to foresee a collapse in the US housing market. But, he argues, pretty much everybody else made the same error - including rival rating agencies and even Buffett himself.